Client Memo - Changes to Freddie Mac Selling Guide Regarding Powers of Attorney
March 17, 2021
On February 3, 2021, Freddie Mac issued Bulletin 2021-4, which announced new and updated requirements for the use of a power of attorney (“POA”). These changes are meant to serve as a “clarification” of the changes Freddie Mac previously announced on December 2, 2020 (Bulletin 2020-45). On March 3, 2021, Freddie Mac announced that these changes are effective for applications received on or after June 30, 2021.
NEW PARAMETERS LIMIT USE OF POA TO ONLY HARDSHIP OR EMERGENCY SITUATIONS
Under Freddie Mac’s new requirements, a POA may only be used when:
- There is an event—such as a medical emergency, natural disaster or other hardship—preventing the Borrower from executing the requisite documents in person, by electronic signature or other alternative electronic means (e.g., remote online notarization, e-closing), or
- Applicable law requires the Lender to accept use of a POA
The addition of “only” indicates a tightening of what Freddie Mac deems as an acceptable circumstance for use of a POA. Freddie Mac emphasizes this tightening by stating that “[a] POA may not merely be used for the convenience of the parties.” Therefore, under Freddie Mac’s new guidelines, for states where acceptance of valid POAs is not legally required, a power of attorney may only be used when there is 1) a hardship or emergency situation; and 2) electronic alternatives are not possible.
If a POA does meet the “hardship or emergency situation” criteria, Freddie Mac requires “[a] notation, description, or other information about the reason why a POA was used” to be included with the mortgage file. If state law requires acceptance of the POA, then “the Lender must include a written statement that explains the circumstances in the mortgage file and deliver a copy of the statement to the document custodian with the POA.” It is our opinion that a Letter of Explanation (“LOE”) from the Borrower detailing why he or she is unable to attend closing will be sufficient.
RESTRICTING INDIVIDUALS WHO MAY SERVE AS ATTORNEY-IN-FACT
Previously, Freddie Mac allowed an individual with a familial, fiduciary, or personal relationship with the Borrower to serve as the attorney-in-fact (“agent”). However, under the new requirements, a personal relationship with the Borrower is no longer sufficient. Therefore, while a relative or the Borrower’s personal attorney is still allowed to serve as the attorney-in-fact and sign on the Borrower’s behalf, an individual who is merely a friend will no longer be able to act as the Borrower’s agent under Freddie Mac’s new guidelines.
In addition to the above, Freddie Mac will continue to allow an individual employed by the title insurer or the title agency insuring the transaction to act as the Borrower’s agent, so long as a closing protection letter is issued by the title insurer. This policy was one of several temporary measures Freddie Mac introduced in March 31, 2020 (Bulletin 2020-8), in response to COVID-19.
BORROWER DISCUSSION AND ACKNOWLEDGMENT OF THE TERMS OF THE MORTGAGE REMAINS A REQUIREMENT
Bulletin 2020-8 also introduced the requirement that “the terms of the Mortgage and use of the POA” are discussed with the Borrower by an employee of the lender or a settlement agent. The discussion may either be in person, over the phone, or via a “video conference system” and must occur after the Borrower receives the final Closing Disclosure, but before closing. This requirement remains effective, however Freddie Mac will now require this discussion and acknowledgment for all transactions where a POA is used—not just purchase transactions.
Evidence of the discussion must be memorialized in an acknowledgment from the Borrower. The form of acknowledgment may either be in writing or, if done via phone or video conference, a recording of the conversation.
Although Freddie Mac did not specify the form of acknowledgment, it is our opinion that a written acknowledgment can include either a document signed by each Borrower or an e-mail from each Borrower stating that the Borrower:
- has received the CD/settlement statement;
- has thereafter discussed the terms of the loan with an employee of the lender or settlement agent; and
- understands the terms of the loan.